CALC: A Bankrupt Real Estate Play

Posted on December 30, 2009

In 2009 it was very profitable to invest in garbage securities, including those of companies that are bankrupt. One of the best performers of the year was General Growth Properties (symbol: GGWPQ.PK), which has skyrocketed 1,000%+ on the back of investment hype propagated by long hedge fund managers, such as Ackman. Interestingly, in recent weeks other hedge fund managers, such as Hovde, have been publishing negative reports on General Growth, suggesting that the stock is most likely worthless post-bankruptcy.

The General Growth story had me looking for other bankrupt real estate related companies that could also ignite some interest with hedge funds. This has led me to CALC a residential home builder operating out of CA, and currently in bankruptcy proceedings. What caught my eye was that Hovde, the same fund that is short General Growth, and whose analyses of General Growth are downright negative in terms of real estate value, has been buying CALC stock in the open market. In addition, today the company was granted approval to continue to trade on Nasdaq, despite the bankruptcy proceedings. The outcome of the Nasdaq ruling suggests an emergence from bankruptcy late in the 1st quarter of 2010.

Needless to say, investing in bankrupt entities, like CALC, is extremely risky, so please do your own due diligence and don’t gamble what you can’t afford to lose. Incidentally, what has probably attracted Hovde to the shares of CALC is simply three things:
1. Unlike General Growth, CALC’s balance sheet and operating business are not in the least bit complex. The company is negotiating a mere $182 million in debt.
2. The company’s tangible book value at 9/30/09 stood at $3.75.
3. The company’s sales seemed to have bottomed. In fact during the last quarter the company saw a: “significant increase in sales orders during the last five weeks of the third quarter.”

The above three points suggest that it’s conceivable that CALC can (as many other real estate entities have recently done) negotiate a restructuring of the debt without much damage to equity shareholders. Importantly, investors (or should I say gamblers) in CALC’s stock should hear news in early 2010. If it’s positive, the stock could easily double.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in CALC. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

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